Most of us are aware of what it takes to maintain a healthy lifestyle. We do all of the things that we know are good for us, like eating a balanced diet, getting plenty of exercise, and sleeping for at least eight hours. But have you ever thought about what it takes to be financially healthy? That’s where the concept of financial wellbeing comes into play.
Financial wellbeing is the measure of how financially fit and healthy you are, and it’s different for everyone. There’s no set number that, once you reach it, means you’ve become financially “well.” Instead, financial wellbeing means something different for everyone.
Do you have enough money to meet your needs? Do you have the freedom to make the choices you want in order to enjoy your life? These are the kinds of things that measure a person’s financial wellbeing.
Let’s dive into what financial wellbeing is, why it’s so important, and how to determine what it means to you. Lastly, we’ll touch on some tips on how to reach financial wellbeing.
What is financial wellbeing?
A few years ago, the Consumer Financial Protection Bureau (CFPB) developed the definition of financial wellbeing. They define it as: “A state of being wherein you: have control over day-to-day, month-to-month finances; have the capacity to absorb a financial shock; are on track to meet your financial goals, and have the financial freedom to make the choices that allow you to enjoy life.”
When you reach financial wellbeing, it means you have a certain level of security and enough money to meet your needs, whatever those needs may be. When you are financially well, you have enough money to make the choices that will allow you to live an enjoyable life.
Do you notice something missing from this definition? Nowhere in it are any numbers mentioned. That’s because financial wellbeing is not about the numbers. Your version of financial wellbeing will be different from everyone else’s.
For example, a person who has a low income might also have a relatively frugal lifestyle, and thus a positive net worth. They have the freedom to make choices and pay for their expenses and wants, and their financial wellbeing is high.
On the other hand, someone who has a very high salary, but also lives an extravagant lifestyle might have a large amount of debt. Just because they make more money than the other person, doesn’t mean their financial wellbeing is higher.
Why is financial wellbeing so important?
Just like your physical and mental health are important to living your life to the fullest, so too is financial wellbeing. Some of the key benefits of being financially well and healthy include:
1. The ability to pursue your dreams
Financial wellbeing allows you to live life to the fullest and go after your dreams and goals. With a safety net (if needed), it’s easier to go after what you truly want in life. Knowing that you have something to fall back on if you fail will allow you to pursue opportunities you might otherwise have passed up.
2. It helps lower your stress levels
Financial wellbeing lets you live a life with lower levels of stress. In an employee survey by PwC, they found that stress due to financial matters was the top cause of stress for their employees and a major distraction at work.
While this was just one company, it is a snapshot of how many people in this country feel about their finances: stress-inducing. When your financial wellbeing is high, however, these worries and stress levels go way down.
3. It gives you the means to deal with emergencies
Lastly, financial wellbeing gives you the means to tackle any financial hurdles or emergencies that come your way. This, in turn, can both reduce your stress levels and keep you on track to reaching your financial goals, so it’s a win all around.
How to determine what financial wellbeing means to you
The CFPB has a ten-question questionnaire, which helps you assess your financial wellbeing. This is a helpful tool to see where you stand and what areas you might need improvement in. They ask questions like how comfortable you are in handling an unexpected expense and whether you have money left over at the end of the month once all of your bills are paid.
It’s also important to understand what financial wellbeing means to you. Financial wellbeing, like all of personal finance, is deeply personal. It can also change over time, like when you get married, have a baby, go back to school, get a new job, buy a house, and more. So it’s important to take stock of your financial wellbeing often, especially after big life changes.
Here are some additional aspects of your life to look at to determine what financial wellbeing means to you:
1. Analyze your current and desired lifestyle
Take a look at what you spend your money on now. Is this the type of life you want to keep up, or do you have another desired lifestyle? Either way, by figuring out what kind of life you lead and what you want, you’ll be able to make better financial decisions for yourself.
For example, if your ideal lifestyle is one where you live in the mountains and ski every day, your day-to-day choices should reflect that desired life. Make sure you are setting yourself up to live this life and that you have the finances to support it.
2. Think about your goals and dreams
What are your goals and dreams for the future? These will guide you in making financial decisions today. One aspect of financial wellbeing is making sure the financial decisions you make today set you up for reaching your goals in the future. Being aware of your dreams and how much they’ll cost is a great place to focus on when pursuing financial wellbeing.
3. Review your personal core values
If you don’t know them yet, take some time to uncover your personal core values. These are your core beliefs that serve as guidelines for how you show up in the world. Establish your core values and begin to live by them. This way, you’ll be in a better position to make the choices that will allow you the freedom to enjoy your life, an essential aspect of financial wellbeing.
Once you’ve thought about these aspects of your life and decided what you want for your present and your future, it’s time to develop a financial plan to help you reach financial wellbeing.
How to reach and maintain financial wellbeing
After you’ve determined what financial wellbeing means to you, it’s time to get to work on achieving it. Here are some of the key ways to reach or, if you’re already there, maintain financial wellbeing:
1. Stick to a budget
One of the best ways to maintain control over your day-to-day and month-to-month spending is to set and stick to a budget. Through budgeting, you’ll become aware of all of your money, what you spend it on, and where you can cut back (if necessary). To get started with building a budget of your own, you can leverage an example budget and learn the ins and outs of budgeting.
2. Have an emergency savings fund
One of the key aspects of financial wellbeing is being able to absorb a financial shock. That’s precisely what an emergency savings fund is for. Whether it’s a medical emergency, a trip to the vet, a broken toilet, or any other unexpected expense, an emergency savings fund allows you to take care of these expenses without falling into financial hardship.
3. Spend less than what you make
One way to ensure that you’ll have enough money to live the life you want to live, for the long-term? Spend less than what you make. This doesn’t mean you can’t have fun (there are plenty of ways to reward yourself that won’t derail your goals).
But it does mean that you should be mindful of your spending. If you’ve had trouble with this in the past, why not try a low-spend or no-spend challenge to set you on the right path?
4. Don’t get into debt you cannot pay off
If you want to stay on track to meet your financial goals, maxing out your credit cards or overborrowing will not help get you there. Instead, be mindful of your debt levels and try to only borrow what you can pay back. If you are drowning in debt, don’t worry. There are plenty of resources available to help get you out of it.
Investing isn’t just for the uber-rich. In fact, knowing how to invest is something everyone should have in their financial toolbox, especially if you want to maintain financial wellbeing. If you’re just getting into it, you can certainly learn how investing works. And if you’re ready to take a deep dive into investing, check out the Clever Girl Finance investing book!
6. Work on your mindset
Lastly, don’t forget about your mindset. When it comes to financial health, a daily practice that includes gratitude and affirmations (whether financial affirmations or more general affirmations ) goes a long way.
Make financial well-being part of your healthy living plan
Financial wellbeing is one aspect of your health that should never be overlooked. It’s worth it to put the time into figuring out what financial wellbeing means to you. That way, you can live a life with less stress and more freedom to do whatever you dream of doing, no matter what comes your way.